With the launch of the iPhone, people began to experience problems with AT&T's 3G service.  Calls were dropped and data transfers were often unpleasantly slow.  While the problems were eventually tracked down to the iPhone 3G's chipset requesting to much bandwidth, many customers demanded AT&T upgrade its 3G network to be on par with Verizon Wireless and Sprint's offerings.

According to a report by Open for Business, AT&T has finally yielded to those demands, but its way of boosting 3G may anger some of its other customers.  AT&T will be sacrificing its 2G network, according to the report, in order to try to boost its 3G signals.  The effect will be many customers will get fewer bars in more places.

For those with first generation iPhones, who paid the steep initial cost, the move may be perceived as a particularly cruel blow to early adopters.  Some point out that Dallas-based AT&T continues to sell many first generation iPhones today.

Cell phones work by transmitting signals on radio bands.  AT&T previously had used the 850 MHz band, due to its robust signal, including superior indoor reception.  According to the report, AT&T plans to shift these transmitters to the weaker 1900 MHz band used by its 3G phones.  The shift will occur in some, but not all areas.

This would in effect downgrade the service on not only the first-generation iPhone, but also most AT&T offered BlackBerry and RAZR phones.  OFB says it confirms that AT&T has already implemented this change in several locations, based on its testing with multiple devices in St. Louis, MO.

OFB contacted AT&T and reports that AT&T technicians all had the same suggestion -- buy a new phone that supports 3G.  For first-generation iPhone owners, this is particularly disturbing as they will not only have to buy a new phone, after paying so much for the first one, but would also have to pay an increased monthly service rate of $10 for data and $5 for text messaging if they switch to the new one.

The shift cuts the service quality of over half the phones offered on AT&T's site.  AT&T’s technical support is offering a one-time $200 credit, to those who specially request it, as a solution to the problem.

According to OFB at least one service technician suggested that iPhone 2G owners terminate their AT&T contract.  The technician suggested that users follow the steps detailed online to unlock the phone and use it on a competitor's network.

AT&T’s executive director of analyst relations, Mark Siegel claims that AT&T is not asking anyone to upgrade to 3G.  And despite AT&T technicians speaking to the contrary, he says AT&T "categorically" denies telling anyone to switch from 2G to 3G iPhones.  Apple could not be reached for comments on these developments.

With AT&T preparing to roll out its new 4G LTE network next year as an upgrade from 3G, the new report raises troubling questions.  Rather than spending money to upgrade its network with more transmitters, will AT&T simply cut the service quality of 3G customers, and cut 2G quality even further?